What Documents You Need to Keep, and For How Long?
What Records to Keep, and for How Long?
A boring but critically important issue for everyone is record retention. Remember the idea of the paperless age? We’ve been here for a while, but you can’t throw out your paper stuff just yet. The decisions as to what to keep are actually more complicated, because now you need to address both paper and electronic records.
Tax basis records (what you paid for an asset, cost of improvements, depreciation calculations) should be saved for at least 3 years after the asset is disposed of. However, if the asset is exchanged (e.g., in a tax deferred exchange say a 1031 deal), keep the records for 3 years after the asset received in the exchange is finally disposed of.
Tax returns keep at least 6 years, perhaps longer. They are not only relevant for a tax audit, but are a great paper trail of your entire financial picture. Now that many people file electronically, and many accountants send clients PDFs of tax returns, set up directories on your computer and keep them forever.
If you were the executor, keep everything until at least 3 years after the final closing letters are received from the tax authorities.
Consider keeping records 6 years after the estate is finally closed, in case a beneficiary or creditor sues.
Estate tax returns should be kept indefinitely, as they can be important for tax basis for the future and other issues that may arise.
Business Records. Organizational documents (certificates of formation or incorporation), bylaws (for corporations), and governing agreements (shareholders, operating or partnership agreements) should generally be maintained as long as the entity exists, and for six years following the dissolution of the entity.
Computerization is great because storage becomes easy, but there are new issues to consider.
How often and how do you back up your computer? There are lots of options. A cheap and easy option is to back up weekly or monthly on to CDs or DVDs or backup tapes, and store them offsite and use a rotationally method. It's more costly, but more assured is an online back up service that happens automatically.
What do you do with old paper records that predate computerization? Scanning is great, but time consuming and thus potentially costly.
Security is a huge issue many ignore. You have to encrypt or otherwise safeguard your back ups.
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